The Capitalist Threat to Capitalism

by Paul Polman and Lynn Forester de RothschildPaul Polman is CEO of Unilever. Lynn Forester de Rothschild is CEO of E.L. Rothschild and founder and co-host of the Conference on Inclusive Capitalism in London on May 27, 2014.23.05.2014

LONDON – Winston Churchill famously observed that democracy is the worst form of government – apart from all the others that have been tried. Were he alive today, he might think the same of capitalism as a vehicle for economic and social progress.

Capitalism has guided the world economy to unprecedented prosperity. Yet it has also proved dysfunctional in important ways. It often encourages shortsightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital.

If these costs cannot be controlled, support for capitalism may disappear – and with it, humanity’s best hope for economic growth and prosperity. It is therefore time to consider new models for capitalism that are emerging around the world – specifically, conscious capitalism, moral capitalism, and inclusive capitalism.

Such efforts at redefining capitalism recognize that business must look beyond profit and loss to maintain public support for a market economy. All of them share the assumption that companies must be mindful of their role in society and work to ensure that the benefits of growth are broadly shared and do not impose unacceptable environmental and social costs.

As it stands, despite recent emerging-market growth, the world economy is a place of staggering extremes. The 1.2 billion poorest people on the planet account for just 1% of global consumption, while the billion richest are responsible for 72%. According to a recent study, the 85 richest people in the world have accumulated the same wealth as the bottom 3.5 billion. One in eight people go to bed hungry every night, while 1.4 billion adults are overweight.

Any system that generates such excesses and excludes so many faces a risk of public rejection. Troublingly, capitalism’s negative side effects are intensifying while confidence in public institutions has fallen to an historic low. According to the latest Edelman Trust Barometer, less than half of the global population trusts government. Business fares better but not much. Scandals – from conspiracies to fix key financial rates to the discovery of horsemeat in the food supply – undermine people’s faith in business as an agent of the greater good.

Disillusioned with both state and market, people increasingly ask whether capitalism, as we practice it, is worth the costs. We see this in movements such as Earth Day and Occupy Wall Street. In many parts of the world – from the Arab Spring countries to Brazil, Turkey, Venezuela, and Ukraine, frustrated publics are taking to the streets.

Addressing the failures of modern capitalism will require strong leadership and extensive cooperation between businesses, governments, and NGOs. To begin creating a path forward, we are convening key global leaders in London on May 27 for a conference on inclusive capitalism. Top executives from institutions representing more than $30 trillion in investable assets – one-third of the world’s total – will be in attendance. Their aim will be to establish tangible steps that firms can take to begin changing the way business is done – and rebuilding public confidence in capitalism.

Such an effort can bear fruit, as Unilever’s own actions demonstrate. Since abandoning guidance and quarterly profit reporting, the company has worked hard to prioritize long-term thinking. It has adopted plans to boost the company’s growth while reducing its environmental footprint and increasing its positive societal impact.

Many of its brands now have social missions – for example, Dove products are marketed with an accompanying women’s self-esteem campaign, and Lifebuoy soap targets communicable diseases through its global hand-washing programs. Not surprisingly perhaps, these are among the company’s fastest-growing brands.

Yet there is a limit to what any one company can achieve. Transformational change will come only from businesses and others acting together. Again, we are hopeful, because momentum is building. Coalitions are being formed to tackle issues ranging from illegal deforestation to food security. Bodies like the World Business Council for Sustainable Development and the global Consumer Goods Forum are uniting key industry players and putting pressure on governments to join forces in the search for sustainable capitalism.

As the cost of inaction rises, governments and businesses must continue to respond. None of us can thrive in a world where one billion people go to bed hungry each night and 2.3 billion lack access to basic sanitation. Nor can business thrive where public optimism about the future and trust in institutions are at historic lows.

We have a long way to go, but we believe the necessary transformation is beginning. A growing body of evidence suggests that new business models can deliver responsible growth. The Conference on Inclusive Capitalism represents another step forward. Though our work has only just started, we are convinced that within a generation we can redefine capitalism and build a sustainable and equitable global economy.

We have no time to lose. As Mahatma Gandhi once put it: “The future depends on what you do today.”

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